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A limited edition

Nandini Lakshman

Last week when Mohini Basappa walked into Shoppers' Stop Hyderabad with her two college-going daughters, her day's itinerary was chalked out.

In one hour, they were going to make some quick purchases - birthday gifts for some friends - and then pick up groceries for next day's dinner party. What happened? After the shopping finished, they spent nearly three hours at the store, having their hair styled at Habib's, the famed Delhi beauty salon chain, which set up shop in the store 10 days ago.

In Chennai, whenever Srikant Bhat feels the urge to buy some music, he pops into a 7ft x 8ft gondola. Strange? Not really. It is the Music World Unplugged outlet in the nearby shopping mall. Bhat, who works for a foreign bank, says that he is often able to pick up top selling music there. "For more serious stuff, I go to the main Music World store at Spencer Plaza," he says.

Small is beautiful in India's fast-changing retail landscape. For the last 18 months, established retail chains have been launching mini-stores and shop-in-shops (SIS) - where an area inside a bigger store is devoted to one brand - to pull in larger numbers of customers. From beauty salons to coffee bars to music outlets to bookstores, everybody is thinking small to drive growth.

If the RPG Enterprises promoted Music World is making music with its Music World Unplugged and Music World Express, Shoppers' Stop book store Crossword has extended into Crossword Corner. Premium coffee retailer - Barista Coffee Company - in which Tata Coffee has more than a 30 per cent stake, is aggressively wooing corporates and institutions to set up its mini Espresso bars. Planet M, publishing house Times of India group's music store, has drawn up a scorching growth path based on its satellite stores.

Eight months ago, even Gitanjali Jewellers, the makers of the Gili brand of jewellery, graduated from being yet another counter in a department store to putting up a shop-in-shop in Shoppers' Stop. And hairstylist Habib has plans to hang his nameplate in each of Shoppers' Stop's nine outlets.

Says Ajay Mehra, chief operating officer of Times Retail, which oversees Planet M, "It makes your brand more salient and visible and allows you to expand at a faster pace." Adds Raghu Pillai, president & CEO retail sector of RPG Enterprises, "For high impulse items, a mini-store or an SIS becomes a fundamental access strategy."

He should know. The Chennai-based five-year-old Music World has been a successful model for the group. In November 2000, the chain became the first to introduce the mini-store and SIS concept with two sub-brands.

Today, sprawled across south India, there are 15 Music World stores, 62 Music World Unplugged gondolas and 11 Music World Express outlets. Pillai recently signed a 32-store deal with Bharat Petroleum to set up counters at their petrol stations. And by 2005, the small store tally is expected to hit 200.

What exactly are these shop-in-shops and mini-stores? They are small retail outlets situated in high traffic sites like malls, department stores, multiplexes and public places like airports and railway stations. They display only a fraction of the wares sold in the anchor stores. Most importantly, they are aimed at getting closer to consumer's home or workplace.

"It helps you to grow fast and the payback period is almost instant provided the location is right," says R Sriram, CEO & managing director of the 10-year old, Rs 30-crore (Rs 300-million) Crossword. Ever since it was acquired by Shoppers' Stop two years ago, it has opened one mini-store after another. So, today seven of its 13 stores are Crossword Corners. While the destination store is targeted at hardcore book lovers, Corners are for impulse buyers.

Typically, Crossword Corners are squeezed into a space of around 500 sq ft-1,000 sq ft and they display around 1,000 to 2,000 titles in five to 10 genres. These are largely bestsellers. By comparison, the 7,000 sq ft to 15,000 sq ft anchor stores have around 30 genres with up to 50,000 titles.

Although Crossword stocks music, CD-Roms, toys and stationery, 60 per cent to 75 per cent of its business comes from books. And while its corner stores account for 10 per cent of the topline, by this fiscal end, with more stores coming up, it is likely to go up to 25 per cent.

It is the same at Barista. Of its total 118 operational stores, 26 are small format stores. By the end of this quarter, Yogesh Samat, COO of Barista claims the tally would go up to 165 locations. The only difference is that, while a stand-alone Barista outlet may have a range of 30 drinks and eats, its limited edition has a 50 per cent drop in menu. "However, the top selling products are always made available irrespective of location. Hence, there is no compromise on customer experience," he says.

That's because, for most retailers, roughly 20 per cent of their products account for 80 per cent of sales. So the runaway hits are stocked in the small format store. And since they fly off the shelves faster, the stock turn or the inventory is replenished almost 12 times a year (and daily for perishables like Barista) compared to five to seven times for the mother store. This, claim retailers, facilitates an instant break-even for the smaller stores. "It is almost from day one," says Planet M's Mehra.

Launched three years ago, Planet M has 10 destination stores (upwards of 10,000 sq ft) and 12 satellite stores ranging from 200 sq ft-500 sq ft. It has mini-stores in many of the Bharat Petroleum gas stations.

And just like the destination store, they display the chartbusters or the bestseller list. Mehra says that the bill size or the per consumer spend in a satellite is half that of the destination shop.

But why are retailers patronising smaller stores with such enthusiasm? Says Arvind Singhal, head of consulting firm KSA Technopak, "A primary reason is the gradual coming-of-age of the large format stores which have a high customer walk in traffic."

"Your throughput increases as you are amortising your costs. Ours is a low cost expansion operation, and the payout is based on the throughput," says Raghu Pillai. He refers to the smaller format as the group's strategy to access new customers. This gameplan today accounts for 15 per cent of Music World's topline and is expected to go up to 25 per cent in the next three years.

The fact that the smaller outlets are also cheaper and easy to set up makes a big difference. Today, a Music World mother store costing upwards of Rs 1 crore (Rs 10 billion) to set up, has daily sales of around Rs 150,000 from 18,000-25,000 titles.

Music World Unplugged with 180 to 200 titles or stock keeping units (SKUs), rakes in about Rs 5,000 daily. And the cost of setting it up? A lakh. The slightly larger express stores (500 sq ft) makes around Rs 40,000 a day on 1,500 titles.

Clearly, retailers say that the smaller format is an economical way of effectively reaching out to consumers in the neighbourhood. While they can be installed in barely three to five days, it takes three to six months to pitch a destination store.

Moreover, the city expansions have taken a toll on commuting distances on already congested roads. And even as builders are no longer offering houses, but a neighbourhood experience with amenities, convenience is at the doorstep of the time conscious consumer.

"With changing lifestyles, it has become a case of the shrinking catchment, which has affected the entire retail business," says a banker. "Gone are the days of the single store brands. You have to go where your customer is," adds Sriram.

A Consumer Outlook survey conducted by KSA Technopak last year shows how in a bid to travel shorter distances, consumers are seeking convenient locations. The survey covers cosmetics, grocery, apparel, books, music and jewellery. Except for apparel, and groceries where consumers are travelling the same length, the distances for other category purchases have shrunk.

Music is down from 2.54 km in 2000 to 1.6 km last year, cosmetics from 2.43 km to 1.55 km books are down from 2.74 km to 1.81 km and jewellery is down from 4.6 km to 3.42 km.

"In such a situation, if you want to grow fast, you have to capture every traffic that walks into all places. Not all models are sustainable on a standalone basis," says Mehra.

That's why, even a department store like Shoppers' Stop which began as a stand-alone concept in the early '90s, is making locational changes for its store. From just being on high streets, it is entering malls, which bring in higher consumer footfalls.

Two years ago, it opened shop in Delhi's Ansal Plaza. By this year-end, apart from opening yet another stand-alone store, it enters a mall in Mumbai. "I get a satisfied customer and the mall offers a shopping service to its clientele. Both are happy as the traffic is generated and sales are guaranteed," says Govind Shrikhande, director buying & merchandising at Shoppers' Stop.

Or look at the growth plans of the Rs 100-crore (Rs 1-billion) Gitanjali Jewellers. Set up eight years ago, while it didn't have a stand-alone store, its Gili brand of diamond encrusted gold jewellery was sold mainly through counters in department stores.

Targeted at the 18 to 34-year old women, prices ranged from Rs 2,500 to Rs 15,000. Early this year, it set up the Facet shop, a shop-in-shop for its upmarket jewellery carrying a tag of Rs 2,000 to Rs 200,000 targeting a family buyer.

Says Shailesh Sangani, managing director of Gitanjali, "We get high traffic even as our maintenance cost is low."

Also, the payback period for the smaller stores is usually a year compared to five years for a destination store. This while smaller stores attract more footfalls than the parent, the conversion rates or people who actually end up buying is 20 per cent to 30 per cent lower.

In a destination store, retailers say that 50 per cent to 75 per cent of the footfalls generate purchases. "Don't forget that as an SIS, we are the secondary destination. You don't have a planned family purchase here," says Sriram.

Even so, retailers claim that small is the way to go. They work out their own revenue sharing deal with the store they operate from. While in some cases, the revenue is equally split, in others, it could be a 60:40 ratio. At the end of the day, what rules the day is the traffic generated by the primary store.

That's the reason for Barista's expansion. "A full fledged Espresso Bar is difficult to sustain as a business at all locations. Yet, we have to be present where our customers exist," says Barista's Samat. So it has tied up with Westside, Planet-M, Ebony, Shoppers Stop, Crossword, ICICI, GE and many other partners "for addressing the needs fulfilled by our cafes".

So are the small stores a picnic all the way? Definitely not. For one, the brand does get submerged within the identity of the primary destination. "There is a jostle for consumer attention amongst other brands, and there is a difficulty in replicating the brand experience entirely," says Samat.

But that is not deterring retailers. For them, the small format has now become a way of life. The logic is simple. If you don't expand, your competitor will and grab your audience. Now that's something nobody wants to encounter. As Samat puts it, "From an active attraction mode in a high street location to an SIS presence continues to make good business sense for us."

(With inputs from Smita Tripathi)

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